Business Times

GSP+ loss may result in South Asia becoming Lanka’s preferred partner – top economist

By Jagdish Hathiramani

South Asia has the potential to become Sri Lanka's most important trading partner, especially with GSP-+ being in doubt. This is because the country already has close bilateral trade ties with India and Pakistan as well as ever-strengthening links with other South Asian countries.

A situation which could ultimately lead to preferential access to 550 million potential middle class consumers from the region's 1.5 billion total population, more middle class consumers than in Europe and North America combined. This was suggested through comments made by Saman Kelegama, a top economist and Executive Director of the country's economic policy research-centred Institute of Policy Studies.

He also points out that the region, said to have a trade potential of US$ 40 billion, "has still not exploited the potential for intra-regional Foreign Direct Investment inflows, especially with Indian companies undertaking relatively large investments in different parts of the world" and, as such, the ASEAN model should be "seriously looked at" to better "exploit the investment-trade nexus in the region".

He also noted that, while "Intra-SAARC trade hovers around 5 percent compared to 25 percent of intra-regional trade in ASEAN, 54 percent in EU, and 59 percent in NAFTA" and with intra-regional trade accounting for less than 1 percent of GDP compared to 20 percent for the same ratio in ASEAN, 75 percent of the trade potential for SAFTA has yet to be tapped.

Mr. Kelegama further suggested that, to reach ASEAN's level of trade, "South Asian countries should remove [Non Tariff Barriers] and reduce the 'negative' list" in keeping with extending SAFTA's coverage to 'substantially all trade' in the region, a measure which experienced "a positive step" in 2008 with the incorporation of trade in services into the "SAFTA agenda".

Speaking at this week's launch of the book "Promoting Economic Cooperation in South Asia: Beyond SAFTA", Mr. Kelegama, also a co-editor of this book, however noted that, to effectively tap the potential of the region, a number of barriers had to be first surmounted, including: the region’s fixation on producing mostly "labour-intensive, highly price-sensitive, and low value adding goods such as textiles, garments, leather goods and primary products", and its trade constraints such as inadequate transportation facilities, poor infrastructure, congestion, high costs and lengthy delays.

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